Deck 2: The External Environment

Question 1

Why is it important for a firm to study and understand the external environment?

Answer 1

The external environment influences the firm's strategic options as well as the decisions made in light of them. The firm's understanding of the external environment is especially useful when it is matched with knowledge about its internal environment. Matching the conditions of the two environments is the foundation the firm needs to form its vision and mission, and to take strategic actions in the pursuit of strategic competitiveness and above-average returns. The importance of understanding the external environment is further underscored by the fact that the environmental conditions facing firms in the global economy of the 21st century differ from those firms faced previously. For example, technological changes and the explosion in information gathering and processing capabilities demand more timely and effective competitive actions and responses. The rapid sociological changes occurring in many countries affect labor practices and the nature of products demanded by increasingly diverse consumers. Governmental policies and laws affect where and how firms choose to compete. Competitive advantage goes to those firms who know their external environment and plan their strategies so they are relevant to these conditions.

Question 2

What are the differences between the general environment and the industry environment? Why are these differences important?

Answer 2

The general environment represents those elements in the broader society that can influence all (or most) industries and the firms that compete in those industries; it represents elements or segments that firms cannot directly control. The general environment is composed of the following segments: demographic, economic, political/legal, sociocultural, technological, and global.
The industry environment is the constellation of factors that directly influences a firm and its competitive actions and responses. Firms are influenced by these factors and should attempt to establish a position in the industry that enables the firm to favorably influence the factors or to successfully defend against the factors' influence. These factors include the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat from substitute products, and intensity of rivalry among competitors.

Question 3

What is the external environmental analysis process (four parts)? What does the firm want to learn when using this process?

Answer 3

The environmental analysis process represents an organized attempt by the firm to better understand turbulent, complex, and global environments. This is achieved by scanning (studying all segments of the general environment to identify existing or potential changes), monitoring (observing the pattern of changes over time in an attempt to detect meaning or identify trends), forecasting (developing feasible projections of what might happen, and how quickly, as a result of changes and trends identified from scanning and monitoring activities) and assessing (determining the timing and significance of environmental changes and trends on the strategic management of the firm). Stated differently, this analysis should examine and process external data on a continuous basis.
An important objective of the environmental analysis process is to identify potential threats (conditions that may hinder the firm's efforts to achieve strategic competitiveness) and opportunities (that may assist or help the firm in its efforts to achieve strategic competitiveness).

Question 4

What are the seven segments of the general environment? Explain the differences among them.

Question 5

How do the five forces of competition in an industry affect its profit potential? Explain.

Question 6

What is a strategic group? Of what value is knowledge of the firm's strategic group in formulating that firm's strategy?

Question 7

What is the importance of collecting and interpreting data and information about competitors? What practices should a firm use to gather competitor intelligence and why?

Question 8

Mini Case
Watch Out All Retailers, Here Comes Amazon; Watch Out Amazon, Here Comes Other Competitors
Note: each chapter Mini-Case is prepared as an auto-graded Guided Case Analysis activity in MindTap™. More information below.
The Strategic Focus profiles the strategic group consisting of Amazon, Walmart, and Jet.com. Amazon has been able to achieve remarkable gains in sales over the last four to five years by providing high quality, rapid, and relatively inexpensive (relative to competitors) service. Walmart has been making progress in its online sales as well, but Amazon has significant plans for massive growth by building up its offerings in clothing and food and by creating its own media content. While Amazon dominates in online sales, a new entrant called Jet.com is trying to gain market share.
-Can any firm beat Amazon in the marketplace? If not, why not? If so, how can they best do so?

Question 9

Mini Case
Watch Out All Retailers, Here Comes Amazon; Watch Out Amazon, Here Comes Other Competitors
Note: each chapter Mini-Case is prepared as an auto-graded Guided Case Analysis activity in MindTap™. More information below.
The Strategic Focus profiles the strategic group consisting of Amazon, Walmart, and Jet.com. Amazon has been able to achieve remarkable gains in sales over the last four to five years by providing high quality, rapid, and relatively inexpensive (relative to competitors) service. Walmart has been making progress in its online sales as well, but Amazon has significant plans for massive growth by building up its offerings in clothing and food and by creating its own media content. While Amazon dominates in online sales, a new entrant called Jet.com is trying to gain market share.
-How formidable a competitor is Google for Amazon? Please explain.

Question 10

Mini Case
Watch Out All Retailers, Here Comes Amazon; Watch Out Amazon, Here Comes Other Competitors
Note: each chapter Mini-Case is prepared as an auto-graded Guided Case Analysis activity in MindTap™. More information below.
The Strategic Focus profiles the strategic group consisting of Amazon, Walmart, and Jet.com. Amazon has been able to achieve remarkable gains in sales over the last four to five years by providing high quality, rapid, and relatively inexpensive (relative to competitors) service. Walmart has been making progress in its online sales as well, but Amazon has significant plans for massive growth by building up its offerings in clothing and food and by creating its own media content. While Amazon dominates in online sales, a new entrant called Jet.com is trying to gain market share.
-What are Amazon's major strengths? Does it have any weaknesses? Please explain.

Question 11

Mini Case
Watch Out All Retailers, Here Comes Amazon; Watch Out Amazon, Here Comes Other Competitors
Note: each chapter Mini-Case is prepared as an auto-graded Guided Case Analysis activity in MindTap™. More information below.
The Strategic Focus profiles the strategic group consisting of Amazon, Walmart, and Jet.com. Amazon has been able to achieve remarkable gains in sales over the last four to five years by providing high quality, rapid, and relatively inexpensive (relative to competitors) service. Walmart has been making progress in its online sales as well, but Amazon has significant plans for massive growth by building up its offerings in clothing and food and by creating its own media content. While Amazon dominates in online sales, a new entrant called Jet.com is trying to gain market share.
-Is Jet.com a potential concern for Amazon? Why or why not?

Question 12

Given the importance of understanding the external environment, why do some firms fail to do so? Students can provide examples of firms that did not understand their external environment. What were the implications of the firm's failure to understand that environment?

Question 13

Have students select a firm and describe its external environment. What actions do you believe the firm should take, given its external environment, and why?

Question 14

How is it possible that one firm could see a condition in the external environment as an opportunity whereas a second firm sees it as a threat?

Question 15

Select a firm in the local community. What materials would help one understand the firm's external environment? How could the Internet be used to complete this activity?

Question 16

Have students select an industry that is of interest to them. What actions could firms take to erect barriers of entry to this industry?

Question 17

What conditions would cause a firm to retaliate aggressively against a new entrant to the industry?

Question 18

How can a firm use its "code of ethics" to analyze the external environment?

Question 19

What ethical issues, if any, may be relevant to a firm's monitoring of its external environment? Does use of the Internet to monitor the environment lead to additional ethical issues? If so, what are they?

Question 20

Think of each segment in a firm's general environment. What is an ethical issue associated with each segment? Are firms across the globe doing enough to deal with the issue?

Question 21

What is the importance of using ethical practices between a firm and its suppliers?

Question 22

In an intense rivalry, especially one that involves competition in the global marketplace, how can the firm gather competitor intelligence ethically while maintaining its competitiveness?

Question 23

Ask the class what they believe determines whether an intelligence-gathering practice is or is not ethical? Do they see this changing as the world's economies become more interdependent? If so, why? Do they see this changing because of the Internet? If so, how?

Question 24

VIDEO QUIZ: Port City Brewing Company
The media quiz offers additional opportunities for students to apply the concepts in the chapter to a real-world scenario as it is described in news reports.
Title: Port City Brewing Company
RT: 2:24
Topic Key: The Industry Environment, External Environmental Analysis, Five Forces of Competition,
Craft beer sales have been increasing while domestic beer sales have been declining. This video is an example of how smaller new entrants compete with larger more established brands and the external threats they face, including consolation.
-Describe the general environment and industry environment in the craft beer market.

Question 25

VIDEO QUIZ: Port City Brewing Company
The media quiz offers additional opportunities for students to apply the concepts in the chapter to a real-world scenario as it is described in news reports.
Title: Port City Brewing Company
RT: 2:24
Topic Key: The Industry Environment, External Environmental Analysis, Five Forces of Competition,
Craft beer sales have been increasing while domestic beer sales have been declining. This video is an example of how smaller new entrants compete with larger more established brands and the external threats they face, including consolation.
-Discuss the set of factors that has a direct influence on a firm and its competitive actions and responses including: the power of suppliers, power of buyers, and the intensity of rivalry among competing firms. When Bill Butcher of Port City Brews discusses shelf space and the way that a merger could increase the leverage of potential of large brewers, he is discussing which competitive force?